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Marketplace Morning Report

Slimmer cable bundles rattle media companies

Dan Weissmann Apr 22, 2015
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Verizon has launched a new pay TV service, with a stripped-down “basic” package and a choice of “channel packs” featuring genres like kids’ programming, news, or sports. The pitch to consumers is, essentially: “How’d you like to build your own TV bundle, with just the programming you want?

Content companies like ESPN, Fox and NBC-Universal have made an offer of their own to Verizon, which amounts to: “How’d you like a fat lip?” They say Verizon’s plans violate their contracts.  

Content producers typically insist that their channels get included with basic bundles, says Derek Baine, research director at SNL Kagan, which watches the media industries. He says they have two very good reasons: one is ad revenue. “The bigger the number of subscribers you have, the more attractive you are to advertisers,” Baine says. “They want access to the whole country.”

The other is the licensing fees, which get passed onto consumers in the price of the bundle. Even customers who never watch ESPN —  and never see any ads — pay for the channel. Verizon says it’s offering consumers a way out of that.

The content companies say Verizon can’t do it without violating their contracts, and Laura Martin, managing director at Needham Equity Research, believes them. She thinks Verizon is bound to lose any legal fight.

However, the company may have other goals in mind. “One goal Verizon could have is to tell consumers that it’s not them that’s requiring these bundles, it’s these companies that are suing them,” Martin says.

In other words, playing to the crowd. Or maybe, she says, Verizon is working the refs — signalling to regulators that the contracts, which require bundling, deserve scrutiny. 

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